The monthly volume of ETH tokens sent to staking via LSD protocols has increased by 15% since Ethereum’s Shanghai update.
According to a report by HashKey Capital, the Ethereum ecosystem’s liquid staking derivatives (LSD) market is experiencing explosive growth. Currently, total value locked (TVL) in this DeFi segment exceeded $22 billion, and the market capitalization of all LSD projects reached $18 billion.
The Shanghai update, which made it possible to unlock staked ETH, was the main driver of the sector’s growth. This event increased the demand for liquid staking protocols, and the average monthly inflow of ETH grew by 15%.
Analysts at HashKey Capital estimate that users send about $140 million daily to staking via various LSD protocols. They also predict that the sector’s TVL over the next two years could double to $46 billion. This, according to experts, will be facilitated by an increase in the number of staked ETH. They expect that by the end of Q2 2025, up to 45% of the total ETH issuance will be sent to staking.
At the same time, experts see LSD protocols as a threat to the Ethereum ecosystem, even though their growth can positively affect the profitability of ETH staking. For example, many liquid staking protocols depend on a small number of validators, so their popularity may lead to centralization. In turn, centralization in LSD protocols could lead to less competition and increased risk of censorship across the ecosystem. This can result in a loss of trust in the network. Additionally, as centralization grows, there could also be downside security risks, as large stakers could, for example, launch a 51% attack.
HashKey Capital analysts also emphasize that new technologies, such as Distributed Validator Technology (DVT), will enhance decentralization in the network. Moreover, the fact that users have increasingly started to abandon CEX services to stake ETH, preferring them to LSD protocols, also contributes to decentralization.
According to Binance, about a quarter of TVL of the entire DeFi sector is blocked in liquid staking protocols.
